If Marginal Propensity to Consume (MPC) is 0.75, what will be the value of Investment Multiplier ?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 4
Given:
Marginal propensity to consume, MPC = 0.75
Since MPC + MPS = 1, the marginal propensity to save (MPS) is 1 − 0.75 = 0.25. The investment multiplier (k) is the reciprocal of MPS:
k = 1/MPS
k = 1/0.25 = 4
So every rupee of extra investment raises income by 4 rupees.
NCERT (2026-27): Introductory Macroeconomics — Chapter 4: Determination of Income and Employment
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